Many successful companies often find themselves strapped for cash for many reasons such as new customer orders that have to be filled, a big increase in employees, bringing a new great product or service to the market place. Traditionally, owners look to their bankers to borrow money and regretfully add debt to their company.
A more advantageous and often over looked strategy is to carry out a sale/lease back of their real estate. The sale/leaseback is becoming more popular as a fast, smart way to raise cash. A good example of how the sale/leaseback works is as follows. An owner of a business has a warehouse or an office building that he runs his operations out of. They are in a dire need to raise cash. The company hires a real estate professional that is familiar with managing sale/lease back transactions. The real estate professional is given the task to find an investor who will buy the building and allow the company to remain in the building for an extended period of time. That duration could be 10 year or 20 years or whatever the buyer and seller agree to.
The rent is then a “contrived” rent meaning that the rent is agreed to by the buyer and the company to accomplish two important goals. Firstly, the rent should be an amount that the company can easily pay and will not be burdensome and secondly that the rent generates an income to the investor that is a meaningful, reasonable return. The investor does not have any interest in ever occupying the space. The company gets to remain in the building and the company takes care of all the issues of maintain the building just as they did previously.
One big difference is that the investor will now pay the real estate tax and the insurance on the building. To use the proverbial cliché, it is truly a win-win for both parties
Written by: Lindsay Craven